Electricity use can vary dramatically in relatively short time frames, and instantaneous generation costs can thereby increase sharply as additional higher-cost (“peaking”) sources are brought on-line. To accommodate this, energy demand management, also known as demand side management (DSM), has emerged as a broad set of programs and efforts to modify consumer demand for energy, usually through various methods such as financial incentives and education.
It has been argued that DSM has been ineffective because it has often resulted in higher utility costs for consumers and less profit for utilities. A fundamental problem with DSM is the difficulty in ensuring any reliability of demand reduction. For example, if a utility has to reduce load for the sake of grid stability, e.g., due to a lack of renewable energy or for cost reasons, even as drastic a measure as increasing prices may not lead to a reduction in demand in reality. Another major problem of DSM is connected with privacy, in that consumers often need to provide some detailed information about specifics of their usage to their electric company. Needless to say, consumers often find this to be highly intrusive.